Linda Artesani shows how to record wire fees withdrawn from trust accounts without unbalancing the trust liability. Create a sub-liability clearing account called "bank/wire fees to be reimbursed," then use two journal entries: one to record the operating expense, another to replenish the trust with transferred funds.
Chapters
Hi there, Linda Artesani from the Accountants Law Lab. Welcome back to our channel where we provide valuable insights and practical tips for bookkeepers working with attorneys and law firms. Today we'll be discussing a common scenario where something that a lot of legal bookkeepers encounter, and that's wire fees that are charged to the bank accounts, to the trust bank account. I'm gonna walk you through a step-by-step guide of how to handle these fees to ensure that the bank and the trust liability accounts remain balanced. So let's dive in. So let's start with step 1. As soon as you see a wire fee be withdrawn from the bank account, that's your indication that you're gonna have to do something with it. You can't book it to bank wire or bank fees expense, because if you do that, it's going to throw the trust liability account out of balance and we don't want it to ever go out of balance. So how do we keep it in balance? Although that money should not have come out of the trust liability account, because remember, those trust funds are not the firm's funds until earned. So how do we record it? We need to record it. We're going to create a sub-liability account. So an other current liability, but it's a subaccount under the parent account trust liabilities, just like your matters, but you're gonna call it bank/wire fees to be reimbursed. And the next step for that is you're gonna make this account so that it's gonna be an account that's a holding account where you're gonna place these funds in the— from the bank fee screen, feed screen, into this account just as holding. It's going to show as a negative when you pull up the balance sheet, you're going to see this negative value on that account. But that's your indication that you have this fee there. It needs to be reimbursed from operating because this is in fact an operating expense for the law firm. Once you've created this account and booked it into the— booked it into that liability account, The next step is going to be to move on to contacting the attorney and letting them know you need to move funds to cover this fee. So you think of it as a holding account or a clearing account. You're going to place these, these fees, fee or fees. Sometimes it can even come down to they bought checks for the trust account, and the banks took it out of the IOLTA. Again, a no-no. You're just going to have this clearing account that sticks out like a sore thumb that you're going to put the funds in just as holding until the fees get reimbursed. Contact the attorney as soon as you see the fees. Let them know this needs to be reimbursed. You need to move funds from operating to trust to cover this because operating funds should have paid for this. Once you have that transfer of funds from operating to trust to cover the fees, now you're faced with how do I book this in? Do you think you book it in as a transfer? The answer to that question is no, no, no, no, no. And I see this all the time when we're correcting books that are done by maybe a bookkeeper that doesn't understand the legal industry, you do not want to use transfers. I don't use them for many things at all in QuickBooks. It's very, very rare when I work with law firms. So you want to do is you want to create 2 journal entries to post to this account. Why do you want 2 journal entries? Well, you're going to show the money leaving operating and you need to show that money hitting the, the bank fee expense, the bank charges expense, because those fees are in fact operating. But you also need to show it hit that Trust Liability Ledger account that you just created, and you need to see that zeroing out. So that means there's two journal entries. First, we have this one entry, as I'm showing here in this picture, and— Entry is showing that we have taken funds out of operating, so we're crediting the operating account. And we're debiting the bank charges expense to show the wire fees are in fact operating expenses. The next step is to show the money coming into trust. So we're debiting the trust bank account. We're inflating the bank account, reimbursing for the fees. And then we're going to credit that sub-liability account to make that account zero. So now that holding account or clearing account is now zero. And we've hit both sides, both bank accounts as a transfer, but we did it in a journal entry so that we can hit the other accounts that are important in this transaction. So now the bank is whole again. So the trust account is now whole. The operating expense has been booked in and we're compliant. And that's the main reason why you want to book this very tricky transaction in, in this fashion. So it's really, once you've got the bank account, once you've got the liability account in place, it's really a 3-part transaction because you need to book the fee in, actually 4-part if you count the 2 journal entries. You're going to book the fee in, you're going to contact the attorney to make the transfer of funds to operate from operating to trust, and then you're going to make those 2 journal entries. So it's a 4-step process. This simple, simple transaction is pretty tricky. You want to get it in properly so that it's stated properly on the books. So when you follow these simple steps, you can confidently handle wire fees charged to the trust bank account with, with ease. However, if you'd like to be a legal bookkeeper and really enhance your legal accounting skills further, we invite you to enroll in our course Fast Track Legal Accounting. It's pretty inexpensive. It will get you to know exactly what you need to know if you have your first lawyer client or first referral of a lawyer-client, you'll have all the things you need to know to do the work correctly. We also have a mastermind group called the Accountant's Law Lab. I'd love to have you join there, especially if you, even if you have one lawyer-client, there's a lot of great minds in our group. We collaborate, we share what we know, and it's a really fun group. We meet every Friday, noontime Eastern, 9:00 AM Pacific. It's important to stay up to date. Continuously improving your accounting skills is the key to your bookkeeping success. If you have any further questions, join our Facebook group, The Accountants Law Lab. We'd love to stay in touch, connect with you, and exchange knowledge with you. And on that note, we'll see you all in the next video. Bye now.
